Deck 7: The Auditors Report

Question 1

Which of these would not be considered a scope limitation?

A) The client would not permit confirmation of receivables with their best customers for fear of annoying the customers.
B) Access to the board of directors meetings was limited to those meetings taking place before the balance sheet date.
C) The auditor is appointed to the engagement too late to observe the client's counting of the inventory.
D) The auditor is forced to call upon an outside expert to properly value antiques that are held in the client's vault as investments.

Answer 1

D

Question 2

Which statement would not be found in a directors' declaration?

A) That the financial statements and notes give a true and fair view.
B) That the financial statements are free from material misstatement whether due to fraud or error
C) That in the directors' opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they fall due.
D) That in the directors' opinion the financial statements and notes are in accordance with the law.

Answer 2

B

Question 3

ASA 700 provides explanatory guidance on all of these points except:

A) The form and content of the auditor's report.
B) The matters the auditor usually considers in forming an opinion.
C) The training of junior audit staff.
D) The auditor's performance and reporting responsibilities.

Answer 3

C

Question 4

When the auditor performs an audit or review of half-year financial statements, they are not required to:

A) circulate the audit report to entity members.
B) consider aspects of the audit process relevant to the current audit for the forthcoming full-year financial statements.
C) treat each half-year as a discrete reporting period.
D) conduct the review in accordance with auditing standards.

Question 5

Circumstances where the auditor is justified in qualifying the audit report because of an inability to obtain sufficient appropriate audit evidence would not include which of the following?

A) the auditor is appointed after the count of physical inventories has occurred
B) the auditor runs out of time to follow normal auditing procedures because it has scheduled too many clients for audit in the final month of the audit period.
C) where a fire has destroyed the entity's accounting records
D) the auditor is not able to obtain sufficient appropriate audit evidence about an associated entity

Question 6

In addition to the requirements of ASA and the ISA standards, the Corporations Act also prescribes the auditor's reporting duties. Which of the following does not constitute one of those duties?

A) forming an opinion on whether the financial statements are presented fairly.
B) forming an opinion as to whether financial records have been kept to enable the preparation and audit of the financial statements
C) forming an opinion that all information, explanation and assistance necessary for the conduct of the audit have been provided.
D) forming an opinion that the records and registers have been kept as required by law

Question 7

Which of these items does not form part of the financial report, as defined in the Corporations Act

A) A statement of cash flows for the year.
B) Notes required by Accounting Standards.
C) Any additional disclosures necessary to give a true and fair view.
D) The directors' report.

Question 8

An emphasis of matter section in an audit report is:

A) not a qualification.
B) a qualification.
C) an adverse opinion.
D) used very commonly

Question 9

When the auditor issues a disclaimer of opinion on a set of financial statements, the audit report should:

A) be unqualified.
B) begin with the term "except for".
C) express an adverse opinion.
D) have a paragraph headed 'disclaimer of opinion'.

Question 10

The emphasis of matter paragraph in an audit report would normally refer to the fact that the auditor's opinion is:

A) qualified in this respect.
B) not qualified in this respect.
C) a disclaimer of opinion.
D) an adverse opinion.

Question 11

The opinion expressed on the consolidated statements of a company is the sole responsibility of:

A) those charged with governance.
B) the audit senior.
C) the principal auditor.
D) the managing director.

Question 12

A standard unqualified audit report is not required to have which of the elements set out below?

A) a heading 'Auditors Opinion'.
B) an opinion paragraph.
C) matters the auditor wishes to emphasise.
D) the opinion of the auditor on the financial statements.

Question 13

If the previous period's financial statements are unaudited, and sufficient appropriate evidence is unavailable, then the current auditor's report will be:

A) qualified on the basis of scope limitation.
B) unqualified on the basis that the comparatives are unaudited and no opinion is expressed on them.
C) qualified on the basis that the comparatives are unaudited and an opinion is expressed on them.
D) qualified on the basis that the comparatives are unaudited and no opinion is expressed on them.

Question 14

Which of these factors could not be the cause of a material misstatement?

A) selection of inappropriate accounting policies
B) inadequate disclosure.
C) disagreement with those charged with governance in relation to the financial statements
D) none of the above, i.e. all could be the cause of material misstatement

Question 15

The auditor's opinion is expressed in reference to the financial statements as a whole. This means that the auditor must:

A) not be overly concerned about individual amounts on the financial statements,
B) consider whether the firm has made a profit or a loss
C) consider whether the statements create an impression that is consistent with the auditor's intimate knowledge of the entity and its financial condition.
D) decide whether the statements are a complete set of financial statements as required by Accounting Standards.

Question 16

The addition of an emphasis of matter paragraph in an audit report

A) does not affect the auditor's opinion.
B) does affect the auditor's opinion.
C) is required by the standards to be included in all audit reports.
D) is only included for going concern uncertainties.

Question 17

The auditor of a reporting entity for which consolidated accounts are required has:

A) the right of reliance on the work of the controlled entity's auditor.
B) the right of access to the accounting records of controlled entities.
C) the right to appoint the auditor of the controlled entity.
D) all of the above.

Question 18

Section 302.of the Corporations Act prescribes that disclosing entities must:

A) prepare half-year financial statements and a directors' report.
B) have the half-year financial statements audited.
C) have the half-year financial statements reviewed
D) not lodge the half-year financial statements with ASIC

Question 19

Which of these statements concerning audit reporting on consolidated accounts is the least accurate?

A) The opinion expressed on the consolidated accounts is the sole responsibility of the principal auditor.
B) It may be necessary for more than one audit firm to participate in the examination.
C) The auditor of the parent entity has very limited rights to access the accounting records and registers of the controlled entity
D) If the auditor concludes that reliance cannot be placed on the work of another auditor, alternative procedures should be attempted before qualifying the opinion.

Question 20

The form and content of the auditor's report is specified within:

A) sec 295 of the Corporations Act.
B) charter of the ICAA.
C) AUS 708.
D) ASA 700.

Question 21

A company can have a review performed as an alternative to an audit for half-year reports. What is the difference in the opinion expressed in a review?

Question 22

Imaginary Services Co Pty. Ltd started trading last year, and has undergone a recent surge of growth due to increased demand for their Imaginary Service. Your firm was appointed auditor for Imaginary Services Co Pty. Ltd in August 2010. As a result of this timing, you did not get the opportunity to observe the physical inventory count as of 30 June 2010 as it was done prior to your appointment. Owing to the nature of the company's records, you have not been able to satisfy yourself as to inventory quantities.
The inventory balance is material, however, you have found that controls over inventory are good, and that there is a low risk of misstatement for this asset. What type of audit report would you issue, and why?
If the company was Imaginary Consumables Co Pty Ltd, and the controls over inventory were not so good, would this affect the audit report, and why?

Question 23

Comparatives refer to amounts or disclosures of one or more previous periods that are presented on a comparative basis with those of the current period. ASA 710 (ISA 710) states that the auditor:

A) is required to determine whether the comparatives take into account the change of auditor.
B) is required to determine whether the comparatives meet the requirements of the applicable financial reporting framework.
C) is not required to investigate the comparatives
D) is required to add an 'emphasis of matter' to the audit report

Question 24

Outline the reporting standards provided in ASA 700 Forming an Opinion and Reporting on a Financial Report

Question 25

When the audit is an initial engagement, the auditor needs to ensure that:

A) opening balances do not contain misstatements that materially affect the current period's financial statements.
B) the previous period's closing balances have been correctly brought forward.
C) appropriate accounting policies are consistently applied.
D) all of the above.

Question 26

If a review of half-year financial statements is to be undertaken, the Corporations Act requires:

A) it should be undertaken by the company's auditor.
B) it should be based on current knowledge of the entity.
C) the auditor to consider aspects of the audit process relevant to the current audit for the forthcoming full-year financial statements.
D) all of the above.

Question 27

If a material misstatement is discovered in previous periods financial statements on which the auditor previously expressed an unqualified opinion and the previous statements are not revised, but the comparatives have been properly accounted for and disclosed in accordance with an identified financial reporting framework in the current years statements, then the auditor should express what sort of opinion?

A) disclaimer of opinion.
B) adverse opinion.
C) unqualified opinion
D) qualified opinion.

Question 28

What will the auditor do to ensure that the directors' declaration complies with the requirements of the Corporation Act? What are those requirements?
ii. Does the auditor conduct additional audit procedures to arrive at this opinion? If so what procedures are conducted? If not, why not?

Question 29

i. When the auditor decides to issue a modified audit report, what factor decides whether they will issue a qualified opinion, or an adverse opinion?
ii. Outline the basic characteristics of a qualified opinion.

Question 30

i. The law requires the disclosure and presentation requirements for General Purpose Financial Reports outlined by the AASB. Which financial statements are required by these accounting standards?
ii. Which other major piece of legislation outlines the scope of the contents of a financial report?
iii. Identify one requirement of this piece of legislation with regards to each of the following:
-the notes to the financial statements, and
-the director's declaration.

Question 31

When the previous period's audit opinion has been qualified, the auditor's report for this period will be qualified:

A) if the matter remains unresolved, regardless of materiality in relation to amounts and disclosures in the current period.
B) if the unresolved matter is material in relation to amounts and disclosures in the current period.
C) if the matter has been resolved, but still bears relevance to the comparatives.
D) all of the above

Question 32

i. Under what circumstances is a disclaimer of opinion appropriate?
ii. Under what circumstances is an adverse opinion appropriate?
iii. Under what circumstances is an emphasis of matter appropriate?

Question 33

i. How are the disclosure and presentation requirements of general-purpose financial reports determined?
ii. What does it mean that the auditor's opinion refers to the financial statements as a whole?
iii. What does an unmodified auditor's report say about the financial statements?

Question 34

Section 302.of the Corporations Act prescribes that disclosing entities must:

A) prepare a half-year financial report and a directors' report.
B) have the half-yearly report audited
C) circulate the half-yearly statements to members
D) all of the above

Question 35

An adverse opinion is most likely to be appropriate when there is:

A) a scope limitation
B) a misstatement confined to a specific item
C) a disagreement with those charged with governance which is material and pervasive
D) inconsistent other information

Question 36

Toady.com is a new public phone and internet company heavily financed by the Eastpac Bank. During your audit of Toady.com you have found that the business is in the practice of signing up new customers with very little in the way of credit checks. You are concerned that the disclosure of bad and doubtful debts may not accurately reflect the true situation of the company. You notice that if you apply the standards correctly the bad and doubtful debts will have such an effect on the financial statements that capital adequacy requirements may be breached.
When you approached management about the adequacy of these disclosures they told you that they were happy with the bad and doubtful debts at their current level, and that they would not be changing their method of application of the standard.
What is your first obligation? What type of auditor's report will you issue, and why?